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Tuesday, May 27, 2014

There was an interesting article in the Financial Times over the weekend which started with this amusing intro..

"How do you persuade people to pay for the air they breathe?"

They weren't talking about literal air.. They were talking about the Fed very soon going to start raising interest rates and how that would affect both Investors and a populace used to prolonged artificially low rates for mortgages and loans..

"After three rounds of quantitative easing, banks have reserves at the Fed almost $3tn greater than the regulatory requirement. Reserves are everywhere, like air above water: no bank needs to borrow them. The Fed could suck out a bit of oxygen and it would not make any difference to the price."

$3,000,000,000,000

That's what happens when QE goes on indefinitely..

Sorta like you have an irrational panic that you're going to one day use the bathroom and find there's no toilet paper, so every time you go to a supermarket or a Target/Wal-Mart type store, you purchase a 24 pack..

And keep doing it for three years..

Only so many times in a day one can pat the 'pastry' and all those extra reserves of toilet paper are simply cluttering the home..

Be interesting to see what happens.. We imagine the pull back will be incredibly slow especially for the rest of 2014 since it is mid-terms and everything in Washington is politically motivated, even the Fed..

And we wonder how people will handle paying more for everything..

Overall, people seem to take up the mantra of the simple-minded horse 'Boxer' from George Orwell's 'Animal Farm' where his favorite expression was "I will work harder" followed by "Napoleon (the pig) is always right"

Replace "Napoleon" with "Obama" and you'd find many 'Boxers' especially among the black community

In the story Boxer serves as an allegory for the Russian working-class who helped to oust the Tsar Nicholas and establish the Soviet Union, but were eventually betrayed by the Stalinists.

But it can easily apply to people living in a supposed capitalist democracy where a few people at the top possess all the power and stringently hold on via an annual sham called elections.

Boxer is loyal.. patriotic.. believes his leaders.. does what he's told

And in the end, for his allegiance, Boxer ultimately converted to glue..

In 'Animal Farm', when Boxer collapses from overwork, the pigs say they have sent him to a veterinarian, when they sent him to the knacker's yard to be slaughtered, in exchange for money to buy a case of whiskey..

We wonder if people are truly prepared to work longer, harder and for more years of their life to pay more for food, utilities, mortgage, credit card debt, student loans, taxes, etc.. etc..

Will they take on second jobs then third and fourth.. All the while deeply loyal to their political party or 'guy' or 'gal' on the throne?

Will they keep getting married and keep making children even though their salaries and living conditions make it a major impracticality?

Will the mindset be "I need to work harder.. I need more education.. I need.."?

Or will people take the "Network" route i.e. the 1975 film and say "I'm mad as hell and not going to take it anymore!"?

We kinda know the answer.. The Boxer mantra

Squeaky wheels get the grease and blindly loyal horseys are converted into Elmer's